Daily Market Update

Coronavirus a major worry to markets, FX flows mixed

January 30, 2020

The U.S. Dollar is trading in mixed ranges, down against some of its major counterparts yet up against resource-based currencies as global markets tumbled on renewed virus-contagion fears.

Overview

Unfortunately, the death toll continues to rise, and the amount of cases reported has now extended to Germany. Already, experts believe the current economic impact of this delicate situation may have surpassed the SARS outbreak in 2003. The global map is looking more and more affected. All indexes around the world are in the red again after some reprieve last 48 hours prior. Swiss Franc and Japanese Yen are naturally up as safe-havens by about half a percent.

On the other hand, across the Atlantic Pound and Euro are improving as they try to recover from multi-week lows. At the moment of writing, Mark Carney was giving his final press conference as Governor of the Bank of England and his exit seems to be boosting Sterling. Nevertheless, his statements were dovish, primarily lowering the U.K. growth forecasts and language regarding “limited and gradual” rate hikes is gone. Data in the U.S. in the form of Q4’s initial reading of Gross Domestic Product showed better than expected at 2.1% over 2.0%, but Personal Consumption and Core PCE both disappointed.

 

What to Watch Today…

  • No major events scheduled for today.

Complete Economic Calendar can be found here.

 

EUR

The Euro is overcoming some weakness this morning, a rare exception to the greenback’s dominance during a time of high concern over global health. Everything from canceled flights to deciding to delay projects integrating Chinese entities is a downward risk to the Euro-zone and Germany has reported that it is possible to contract the virus by visiting the mainland. Regardless, the shared currency may be heading back up.

Economic Confidence data for January revealed a surprise in positive expectations across various industries although Consumer Confidence continued to shrink. Tomorrow we will get Q4 GDP growth and Consumer Price Index pace for January expected at (-0.9%).

GBP

The Pound is rising based on the Monetary Policy Committee’s 7-2 decision not to cut into the benchmark interest rate of 0.75%. It has to be emphasized though officials are not content with the economic forecast or the doubts surrounding what separating from the EU could mean to trade risks. As Mark Carney put it best, Britain is entering a period of “profound structural change.”

We believe eventually there will be a cut and we shall see the tone and narrative from incoming Andrew Bailey, former deputy governor between 2013-2016. There is some tension around trade floors that some traders may have received a leak to the BOE’s decision and that can be credited for the Pound’s rapid surge even before the announcement was made. We shall monitor if this creates any headlines or headaches later.

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